By Len Lazarick
As Republican delegates railed against the proposed state income tax hike Wednesday afternoon, a lone freshman Democrat from one of the most liberal and affluent districts inside the Capital Beltway got up to explain why she too could not vote for the taxes.
“I believe this discriminates against two-income families with children at home,” said Del. Ariana Kelly, a Bethesda mom with two young children at home.
The State and Local Revenue and Financing Act raises state income tax rates by .25% to .50% for joint returns with more than $150,000 in Maryland taxable income — a 5% to 15% increase in the rate. And the law reduces personal exemptions for these couples, totally eliminating them for couples with more than $200,000 in federal adjusted gross income. This raises both state taxes and the local piggyback income tax.
“We are not talking about people sitting on great piles of money,” Kelly said. “Kids are extremely expensive.”
Increasing the marriage penalty
On her personal website, Kelly explained her opposition further.
“In current tax law, married Marylanders pay a higher tax rate than their single colleagues in the exact same jobs starting at a household income of $200,000. This is known as a ‘marriage penalty,’” Kelly said.
“By changing the tax brackets, this legislation expands the higher marriage penalty tax rates to affect couples earning $150,000 (for example, a husband and wife who each earn $75,000). This makes absolutely no sense to me, because when both parents are working, household expenses, including childcare, are higher, not lower.”
In addition, the highest marginal tax rate of 8.95% — including the county piggyback — will now be applied to married working parents who together earn more than $300,000, but not to a single person living on $250,000.
Impact of exemptions
The change in the personal exemption had a similar impact, Kelly said.
For families with a combined income of more than $150,000, “this amounts to a flat fee per child between $53 and $107. A family of four with a combined income of $150,000 will pay $394 in new Maryland taxes thanks to this exemption phase-out. However, a single man making $150,000 will pay only $104. A single millionaire will pay only $53 extra. Even if that millionaire had a wife and two kids, they would pay only $212 in new taxes from this exemption phase out.”
“This part of the tax plan brings in $82 million, almost entirely from middle-class families with two working parents and dependent children,” Kelly said. Based on data from the comptroller’s office, “I believe that 78% of the estimated 300,000 tax filers affected will have incomes under $250,000; 85% will have two working spouses and 70% will have dependents at home.”
These are particularly relevant numbers in District 16 in Bethesda. According to 2000 Census figures, 40% of the families there had household incomes of $150,000 and above, and 25% had incomes of $200,000 or more.
Another progressive objects
Along with Kelly, Del. Kirill Reznik, another Montgomery County lawmaker who describes himself as a progressive, joined four other Montgomery Democrats who voted against both the tax hikes and the budget act, which shifted teacher pension costs to the counties.
On his blog, Reznik said, “I saw these bills as an unacceptable burden to our lower and middle class working families in Maryland.”
“As a vocal critic of the teacher pension cost shifts, I believe that this shift will force counties, particularly Montgomery County, to either increase property taxes, cut services to the community, or both. The pension shift, coupled with the tax increases passed, put too heavy a burden on middle class families, especially those with children. This was not a plan that increased taxes on the top 1%. Rather, over 40% of Montgomery County residents will see a tax increase of one form or another from this plan, and I refused to vote for a plan that was not progressive.”
Families in Reznik’s District 39 in central Montgomery County had much lower incomes than those in Bethesda, according to the 2000 Census, with only 11% making $150,000 or more.
Opposite views on impact of tax hikes
The impact of the tax hikes was widely disputed. Another Montgomery County Democrat, House Majority Leader Kumar Barve, said the tax hikes amounted to $6.25 a week ($325 per year) for a married couple making $250,000, Barve said he and his wife would be paying an additional $4.88 per week and “I am willing to pay that price” to maintain state programs.
Citizens for Tax Justice said Maryland lawmakers were “bucking a national trend” to cut taxes, particularly on the wealthy. The bill “would also lessen the unfairness of a regressive tax system that allows Maryland’s wealthiest residents to pay less of their income in tax than any other group,” the group said, based on an analysis by the Institute for Tax and Economic Policy.
“Only 11 percent of Maryland taxpayers would face an income tax increase in 2012 as a result of SB1302,” the group said, though legislators were quoting a figure that placed it at 14%.
The group said 54% of the new income tax revenue would come from the wealthiest 1% of state taxpayers — a group with an average income of nearly $1.6 million per year. Eighty-seven percent of the revenue would come from the top 5% of taxpayers.
Most of these higher-earning taxpayers could also take advantage of the “federal offset,” since they can write-off their state tax payments as deductions and receive a federal tax cut in return.
“Seventeen percent of the revenue raised by SB1302 — or $28 million in tax year 2012 — would come not from Marylanders, but from the federal government in the form of new federal tax cuts for Maryland taxpayers,” said Citizens for Tax Justice.
Tax Foundation disagrees
A report on Tuesday by Scott Drenkard of the Tax Foundation calculated that under the next tax bill, a dual-earner, two-child family with $250,000 in federal adjusted income living in Maryland would pay $989 more in state income taxes this year, a total of $17,775 compared to $16,612 in the District of Columbia and $11,651 in Virginia.
Drenkard concluded that “Maryland’s latest income tax increase proposal fails to meet the criteria of sound tax policy. By opting to raise taxes on high-income earners, the proposal seeks to raise taxes in a politically expedient way, but one which will have distortive long-term effects.”